India’s Sensex Declines for Second Day, Erasing Weekly Advance

April 4 (Bloomberg) -- India’s benchmark stock index
declined for a second day as some investors judged recent gains
to all-time highs as excessive.

Bharat Heavy Electricals Ltd., India’s biggest power-equipment maker, retreated for a fifth day. NTPC Ltd., India’s
largest power producer, tumbled the most in five weeks. Tata
Motors Ltd., the owner of Jaguar Land Rover, fell the most in
two weeks.

The S&P BSE Sensex lost 0.7 percent to 22,359.50 at the
close in Mumbai, almost erasing a weekly gain. The CNX Nifty
index declined 0.6 percent. The Nifty climbed to records for
eight straight days through April 2 as international investors
extended Asia’s largest stock-market inflows amid cooling
inflation, shrinking deficits and a strengthening rupee. India
holds a national election starting April 7, with opinion polls
indicating the main opposition Bharatiya Janata Party will win
the most seats, ending the Congress Party’s decade-long rule.

“It’s a good sign that market has run up ahead of the
elections and there is some healthy correction, which will give
an opportunity for more investors to participate,” Vikram
Kotak, chief investment officer for equities at Deutsche Asset
Management (India) Pvt., which manages $3 billion in assets,
said in a Bloomberg TV India interview today. “I am pretty
optimistic.”

Election Outlook

Prime Minister Manmohan Singh’s Congress party may be
headed for its worst-ever electoral performance as voters punish
the government for a series of graft scandals, Asia’s fastest
consumer inflation and slowing growth. The BJP is favored by
investors seeking change to revive an economy expanding at the
slowest pace in a decade. Results will be announced on May 16.

Asia’s third-biggest economy probably grew 4.7 percent in
the year ended March 31, according to a central-bank survey of
forecasters published April 1, compared with a decade-low 4.5
percent expansion the previous year. The $1.8 trillion economy
is expected to expand 5.5 percent in the current fiscal year
that started April 1, according to the survey.

Reserve Bank of India Governor Raghuram Rajan held the
benchmark borrowing rate at 8 percent on April 1 after consumer-price inflation eased to a two-year low in February and
wholesale-price gains slowed to the least in nine months.

Shrinking Deficits

The current-account deficit will be kept below $40 billion
this fiscal year, compared with a record $88 billion in the
previous 12 months, and the budget gap will narrow to 4.6
percent of gross domestic product from 4.9 percent, according to
Finance Minister Palaniappan Chidambaram.

“This rally is not happening only due to the hope around a
political party coming to power,” Kotak said. “India’s economy
has bottomed out and that’s contributing.”

Bharat Heavy Electricals tumbled 2.1 percent, extending
this week’s loss to 8.3 percent, the most on the Sensex. NTPC
declined 2.2 percent, the most since Feb. 28. The S&P BSE India
Capital Goods index declined 1.2 percent this week after a 16
percent advance last month.

The Sensex has climbed 5.6 percent this year and trades at
14.1 times projected 12-month earnings, compared with the MSCI
Emerging Markets Index’s 10.4 times. The Indian gauge’s
valuation was 18 times in November 2010, when the Sensex set its
previous high.

“The index is at an all-time high but the valuations are
not at an all-time high,” Deutsche Asset’s Kotak said.
“Opportunities-wise, there is scarcity in the world and India
is one of the very preferred destinations.”

Overseas investors bought a net $187.2 million of Indian
shares on April 1 and April 2, extending this year’s purchases
to $4.27 billion, the most among eight Asian markets tracked by
Bloomberg.